June 1, 2006
I respectfully urge the Securities and Exchange Commission to deny immediate effectiveness to the proposed rule change to rename the Nasdaq National Market as the Nasdaq Global Market and to create the Nasdaq Global Select Market. I believe that the Nasdaq Stock Market, Inc. has failed to consider the impact of this change on issuers and investors and has improperly designated the proposed rule as meeting the criteria in Rule 19b-4(f)(6) under the Securities Exchange Act of 1934.
For example, Section 18(b)(1)(A) of the Securities Act of 1933, as amended, defines a "covered security" to include a security that is listed, or authorized for listing on the National Market System of the Nasdaq Stock Market (or any successor to such entities). The bifurcation of the current National Market into the Global Market and Global Select Market raises the question about whether both, one or none of these new markets will be considered a successor within the meaning of Section 18(b)(1)(A). Accordingly, I believe that Nasdaq has not properly designated the proposed rule as meeeting the criteria of Rule 19b-4(f)(6).
A number of state laws refer to the National Market System of the Nasdaq Stock Market for various reasons. The proposed change and the attendant ambiguity that it will engender is likely to create substantial burdens on issuers and the public. For example, California Corporations Code Section 25100(o) exempts from state qualification requirements any security listed or approved for listing on the National Market System (or any successor thereto) if the system has been certified by rule or order of the California Commissioner of Corporations. This exemption remains important to issuers because it specifically includes warrants or other rights to purchase the specified listed securities. Similarly, Corporations Code Section 25101(a) exempts from California's nonissuer qualification requirement ANY (not just listed or covered securities) of an issuer whose securities are listed on the National Market System (or any successor thereto) if the system has been certified by rule or order of the California Commissioner of Corporations. Additionally, California Corporations Code Section 25117 creates an exemption for evidences of indebtedness, and the purchasers thereof, from California's constitutional usury limitations, if the issuer has any security listed or approved for listing oon the National Market System (or any successor) if the system has been certified by the Commissioner of Corportions. Other California statutes that refer specifically to the National Market System include: Business and Professions Code Section 17537.2, Corporations Code Sections 301.5 (listed corporation defined), 1300 (dissenters rights) and 25014.7 (eligible roll-up transactions), Government Code Sections 19993.05 (Freedom of Financial Choice Act) and 45308.5 (city retirement systems), Harbor and Navigation Code Section 1170.3 (pilot's conflict of interest code), Health Safety Code Section 25112.5 (disclosure statements to the Department of Toxic Substances Control), Insurance Code Sections 742.245 and 41192.8, and Probate Code Sections 2544 (sale of securities by guardian or conservator), 10200, and 10537 Because immediate effectiveness will not give time to state regulators and issuers to address these issues, I believe that Nasdaq has not properly designated the proposed rule as meeeting the criteria of Rule 19b-4(f)(6).
By way of background, I previously served as California's Commissioner of Corporations as well as its Interim Savings Loan Commissioner. I have also served as a member of the California Senate Commission on Corporate Governance, Shareholder Rights and Securities Transactions, Co-Chair of the Corporations Committee of the Business Law Section of the California State Bar and Chairman of the Business and Corporate Law Section of the Orange County Bar Association. The foregoing comments, however, are my own and are not being submitted on behalf of any of the foregoing.